Further simpli cation of the general ledger is brought about by the use of subsidiary ledgers. In particular, for those businesses that sell goods on credit and that nd it necessary to maintain a separate account for each customer and each creditor, the use of a special accounts receivable ledger eliminates the need to make multiple entries in the general ledger. The advantages of special or subsidiary ledgers are similar to the ad vantages of special journals. These are: 1. Reduces ledger detail. Most of the information will be in the sub sidiary ledger, and the general ledger will be reserved chie y for sum mary or total gures. Therefore, it will be easier to prepare the nancial statements. 2. Permits better division of labor. Here again, each special or sub sidiary ledger may be handled by a different person. Therefore, one per son may work on the general ledger accounts while another person may work simultaneously on the subsidiary ledger. 3. Permits a different sequence of accounts. In the general ledger, it is desirable to have the accounts in the same sequence as in the balance sheet and income statement. As a further aid, it is desirable to use num bers to locate and reference the accounts. However, in connection with accounts receivable, which involves names of customers or companies, it is preferable to have the accounts in alphabetical sequence. 4. Permits better internal control. Better control is maintained if a person other than the person responsible for the general ledger is respon sible for the subsidiary ledger. The general ledger accounts as a control ling account, and the subsidiary ledger must agree with the control. No unauthorized entry could be made in the subsidiary ledger, as it would immediately put that record out of balance with the control account. The idea of control accounts, introduced above, is an important one

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in accounting. Any group of similar accounts may be removed from the general ledger and a controlling account substituted for it. Not only is an other level of error protection thereby provided, but the time need to pre pare the general ledger trial balance and the nancial statements becomes further reduced. In order to be capable of supplying information concerning the business s accounts receivable, a rm needs a separate account for each cus tomer. These customer accounts are grouped together in a subsidiary ledger known as the accounts receivable ledger. Each time the accounts receivable ledger must also be increased or decreased by the same amount. The customers accounts are usually kept in alphabetical order and include, besides outstanding balances, information such as address, phone number, credit terms, and other pertinent items.

If, during the year, many transactions occur in which customers return goods bought on account, a special journal known as the sales returns journal would be used. However, where sales returns are infrequent, the general journal is suf cient. The entry to record return of sales on account in the general journal would be: Sales Returns 800 Accounts Receivable 800

CHAPTER 6: Repetitive Transactions

The accounts receivable account, which is credited, is posted both in the accounts receivable controlling account and in the accounts receivable ledger. If the Sales Returns involve payment of cash, it would appear in the cash disbursements journal. Sales Returns appear in the income state ment as a reduction of Sales Income. To induce a buyer to make payment before the amount is due, the seller may allow the buyer to deduct a certain percentage of the bill. If payment is due within a stated number of days after the date of invoice, the number of days will usually be preceded by the letter n, signifying net. For example, bills due in 30 days would be indicated by n/30.